Navigating Bad Credit Pitfalls: How You Can Start Over

As a proud Aussie, you no doubt feel uncomfortable with the fact you might be struggling a little with your finances. Before you allow yourself to endure too much stress, you will be glad to know there are things you can start doing today that can help start easing the pressure.

While implementing solutions and cleaning up credit issues can take time, it will be well worth the investment. To help direct your efforts in the right direction, we would like to offer you some tips on navigating bad credit and starting over.

Making Payments on Time

Late and missed payments will erode your credit rating faster than anything else. Conversely, making payments on time will improve your credit score over time. Often times, missing payments is a side effect of circumstances outside of your control such as job loss or medical emergencies. In those regrettable and difficult circumstances, you have to make decisions on what needs to come first. You can also look into what financial relief programs are available in your area to assist you, but if that doesn’t work, the better solution for your credit is to close down accounts you can no longer pay regularly.

Keep Your Credit Card Balances Low

It should be of no surprise that the amount of debt you show impacts your credit rating. As you struggle with credit issues, you might get the urge to continue using your credit cards to get from one paycheck to the next. Avoid doing that, especially if you are just entering a period of financial difficulty and your card balances are zero or low. By keeping your credit balances low, your credit will start to improve because the ratio of used credit versus available credit is a major determining factor for your score. Even with everything else perfect, if your credit card balances are high then you can expect it reflected heavily in your score.

Closing Credit Card Accounts

A common trait among people who are struggling with debt is having access to too many credit cards. The number of cards you have and the available credit limits will impact your credit rating. It is easy to fix this issue if you can close some accounts. If possible, you could roll some of the balances on high-interest rate cards into lower interest rate cards and close the zero balance accounts.

With that said, it is still a good idea to maintain a credit card or two so you can continue showing creditors you can make payments and make them on time. Truthfully, it is a balancing act, but your efforts would be rewarded with a better credit rating for balancing on that line well.

Refinancing Assets

Let us say you bought a new car two years ago. At the time, your credit rating was poor, so you were looking for bad credit car loans in Brisbane, which resulted in you having to accept a higher interest rate. If your credit rating is better you might be able to refinance that car at a lower interest rate. That would help save you some money and create the extra cash flow you can use to pay off other creditors.

This same approach might work with your mortgage. In fact, refinancing your home could result in you being able to pull out equity, which you could use to pay down or pay off high-interest credit card debt.

Creating a Monthly Budget

Maybe all you need is a tool to help you organize your finances. If you have not done so in the past, you might want to start preparing monthly budgets. By putting everything down on paper, you will begin to see where the real issues are coming from. You might also come to find you are simply living beyond your means. If that were to be the case, you could probably fix your credit issues by downsizing and matching your expenses better with your income.

One easy technique to use your budget to conquer your debt is by paying off the smallest balance first and then putting the extra money you save on that payment each month into another payment. By paying extra on the next payment, it will get paid off faster and save you money on interest. Once that next payment is gone, you can roll both into the next highest one until you’ve paid all your debts off. This takes discipline, but you can save thousands of dollars by being diligent about this process.

Part-Time Job and Lowering Expenses

There are only two ways to improve your financial situation, you either make more money or you get rid of debt. Even if it is just for a short time, getting some extra work on the side can give you the boost you need to pay down stubborn debt. Small sacrifices now mean peace of mind and comfort later down the road.

If working extra isn’t an option, look into other ideas such as renting out a room. Perhaps you need to swallow your pride and move in with a family member or trusted friend for a short time while you sort things out. This can feel like a loss and a defeat but look at your goals from the proper perspective. Would you rather move out on your own terms or because you get evicted, or your home is repossessed in five months? Wouldn’t moving now put you five months closer to being in a good place again? Selling your personal items can work but it isn’t sustainable, so that should only be used as a last resort unless you need or desire to declutter.

To get your credit back on track, you just need to invest a little time and effort. Remember, you would be doing this for the benefits of financial freedom, reduction in stress, and improvement of your quality of life. Then, if the time comes that you need to borrow money again in the future, you can save yourself thousands of dollars in interest and fees over time. With patience, discipline, and hard work, you can repair your credit and become debt-free.